A blockchain is basically a record-keeping system that can store digital information securely, and keep it organized in a chronological order.
Every time a transaction happens in a system using a blockchain, it is logged. It is also linked to the transaction that happened before it, creating a long chain of connected information.
This means that every single transaction can be accounted for, and new transactions can be verified by checking their information against the entire history of the system. The inter-connectedness of this model of record keeping makes it highly secure and enables transparency.
It is a common misconception that cryptocurrencies are decentralized and therefore anonymous. This is false, as the main ledger for every transaction is recorded and is openly available for anyone to check. Excluding some privacy centered tokens that specialize in the anonymity aspect.
Although, the user of the wallet is the person who has full access to it, mainly the private key. So, whoever knows the private key, is the owner of the wallet. It is strongly advised to keep the key secure and only the owner of the wallet should know it.
Decentralization and inner workings
By storing data across its peer-to-peer network, the blockchain eliminates a number of risks that come with data being held centrally.
Peer-to-peer blockchain networks lack centralized points of vulnerability that computer crackers can exploit; likewise, it has no central point of failure. Blockchain security methods include the use of public-key cryptography.
A public key (a long, random-looking string of numbers) is an address on the blockchain. Value tokens sent across the network are recorded as belonging to that address.
A private key is like a password that gives its owner access to their digital assets or the means to otherwise interact with the various capabilities that blockchains now support. Data stored on the blockchain is generally considered incorruptible.
Every node in a decentralized system has a copy of the blockchain. Data quality is maintained by massive database replication and computational trust. No centralized official copy exists, and no user is trusted more than any other. Transactions are broadcast to the network using software.
Messages are delivered on a best-effort basis. Mining nodes validate transactions, add them to the block they are building, and then broadcast the completed block to other nodes.
Blockchains use various time-stamping schemes, such as proof-of-work, to serialize changes. Alternative consensus methods include proof-of-stake.
Growth of a decentralized blockchain is accompanied by the risk of centralization because the computer resources required to process larger amounts of data become more expensive.
As stated above about the ledger being copied from user to user it means that a transaction would be confirmed based on all the ledgers of all participating devices.
Technically, this system can be hacked if someone gets 51% of the ledgers and changes them in unison. This method is highly unlikely because of the sheer scope and cost in doing this.
Which is what makes blockchain infallible in the current climate, and only user error is not quantified.
This is the main subject of development in the new iteration of the blockchain. Currently, the power required to constantly update the BTC blockchain requires massive amounts of electricity. It uses an amount close to Denmark's power consumption rate. This makes it quite hard to scale further, as it requires more and more power to upkeep this kind of blockchain. Plus, the transactions that can be processed in the original Blockchain is 7 per second.
This is why Blockchain 3.0 and other developments are being popularised - they offer solutions to these problems. The transactions per second are much higher than previous iterations, and smart contracts are available for even further options to use the system.
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